HUD HOC Reference Guide

Lenders are cautioned regarding the use of premium financing on a consistent basis with an actual or implied promise for refinancing at a lower rate.

Premium rate financing must be disclosed on the HUD-1 Settlement Statement and the Good Faith Estimate (GFE). The HUD-1 Settlement Statement and GFE must specifically itemize charges being paid on the borrower's behalf.

Premium pricing is to be used for financing the borrower's closing costs and/or prepaid items only. It cannot to be used for payment of debts, collection accounts, escrow shortages, missed mortgage payments, judgments, etc.

Premium pricing is not considered as part of the 6% seller contribution limit. If there are remaining funds due the borrower from a premium pricing agreement, they must be applied to the borrower's principal balance.

Please see: HUD Handbook 4155.1, Section 5.A